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Aishath Muneeza, Ismail Wisham, Rusni Hassan,
International Islamic University Malaysia
banking which rests on the principle of certainty of capital
and certainty of return on it. Equally unique is the other side
of the new system which requires the banks to share their
profits or loss with their depositors against their traditional
role of being the residual claimant. The 'rigid financial
intermediation' of interest-based system has been replaced
by a system of 'participatory financial intermediation' in
which there is participation for the common benefit. This
change in the relationship of depositors and banks though
seemingly innocuous carries seeds of basic structural
changes in the financial and monetary order. A system in
which depositors and banks agree to share in profits or loss
of banks seems to possess sufficient intrinsic strength to
withstand many a crises which sometimes lead to bank
failures in the traditional system of interest-based banking
which prides itself on the certainty of depositors' capital and
return on it only as long as the weather is fair.
Subsequently, the Partnership Act was amended too.
Accepting deposits from clients on the basis of sharing of
profit and loss had another legal implication in the light of
section 4 of the Partnership Act 1932 which defines
"partnership" as the relation between persons who have
agreed to share the profits of a business carried on by all or
any of them acting for all. The new system of accepting
deposits by banks on the basis of sharing of profit and loss
within the meaning of section 4 of the Partnership Act 1932
could possibly be interpreted to the effect that depositors
had become partners of the bank. Under the Act a partner's
liability is unlimited and the liabilities of a partnership can
be recovered from any one of the partners. In a situation like
this the liability of a PLS depositor could even exceed the
principal sum of his deposits though it is difficult to believe
that a partnership can inadvertently come into existence
between a bank and its depositors. Another limiting factor is
that the Partnership Act 1932 restricts the number of
partners in an ordinary partnership to twenty and it is
hardly to be expected that the number of PLS depositors of a
bank could be so scant. However, to remove this confusion
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